BlueLight.com Still Open for Business After Kmart's Chapter 11 Filing

Discount retailer Kmart Corp.'s filing for Chapter 11 bankruptcy protection will not dim the lights at its BlueLight.com online store.

The 2-year-old e-commerce site does not anticipate any lapse in its shopping or Internet access service, said Dave Karraker, vice president of communications at BlueLight.com.

"We're a key element in Kmart's retail strategy, and the Internet itself is a key element as well moving forward," he said. "We don't expect to see any changes."

The reassurance is needed. BlueLight.com's parent was forced to file for bankruptcy protection Jan. 22 after customers, financial markets and suppliers lost faith in its ability to stand up to rival discounters, market leader Wal-Mart Stores Inc. and hipper rival Target Corp.

A cutback in newspaper advertising circulars also contributed to Kmart's financial ills. Weekly circulars helped pull customers into Kmart stores, but were dropped in marketing cutbacks.

Kmart, with $17 billion in assets and the No. 2 retailer after Wal-Mart, becomes the nation's biggest retail bankruptcy, according to Bankruptcydata.com. Kmart's 2,114 stores collectively lost $224 million in the third quarter of 2001 ended Oct. 31.

Federated Department Stores Inc., which filed for Chapter 11 in January 1990, came in second with $7.9 billion in assets. Montgomery Ward Holding Corp., which filed five years ago, was third with $4.9 billion in assets. Ward liquidated last year.

Kmart promises to complete its reorganization next year. Under Chapter 11, it is offered protection from creditors as it reorganizes and prepares a plan to pay off its debts.

Like Toys 'R' Us, which also once filed for Chapter 11, Kmart will terminate store leases, close underperforming stores, cut staff, consolidate offices and revamp operations. This should save about $600 million a year.

The retailer also will be helped by the $2 billion in debtor financing it secured from Credit Suisse First Boston, Fleet Retail Finance Inc., General Electric Capital Corp. and JP Morgan Chase & Co.

Most vendors are cooperating as well. One of them is Martha Stewart Living Omnimedia, which last summer signed a seven-year contract. The Martha Stewart Everyday line of home and garden products last year pulled in $1.5 billion in sales for Kmart.

It is not known at this time whether Martha Stewart can withdraw support from Kmart in case of a bankruptcy filing. Martha Stewart products and electronic items are the best sellers on BlueLight.com. The site does not break out sales separately from its parent.

"All of our vendor contracts are not public," Karraker said. "But, of course, we're going to be contacting all of our vendors to give them reassurances that BlueLight will continue to pay for itself, and we'll continue to work with them in a positive fashion moving forward."

It was only in September that Kmart bought back the minority stakes Japan's Softbank Venture Capital and Martha Stewart Living had in BlueLight.com. The online store has 34 employees in its San Francisco headquarters and six in Kmart's base in Troy, MI.

BlueLight.com draws 4 million unique visitors a month, two-thirds that of Walmart.com. Its BlueLight ISP service has 200,000 paid subscribers.

Karraker said Kmart has assured its e-commerce arm that it will be business as usual.

"The only change you could possibly see for the online store is if Kmart sees other uses for us in terms of marketing or a change in the direction of the inventory they carry," Karraker said.

"At this point, the product selection remains the same, the direction we're headed remains the same, the ISP remains the same," he said. "To the outside world, if there's one message I can give the consumer it's that you can continue to order on BlueLight.com - your packages will arrive, the ISP will remain in business."

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